Opinion: Medicare’s drug price ‘negotiations’ are anything but

President Joe Biden’s Inflation Reduction Act gave the government sweeping new power to set the price Medicare will pay for an annually expanding list of medications. This August, the Centers for Medicare & Medicaid Services announced the first 10 drugs subject to what Health and Human Services Secretary Xavier Becerra insists on calling voluntary negotiations. But what the IRA provides for is “negotiation” in name only.

There is nothing at all voluntary about the policy for drug makers. And downstream, if left uncorrected, these price controls will drastically undermine the development of new treatments in areas ranging from cancer to Alzheimer’s disease. How’s this for a negotiation? The law says that if a company refuses to accept the CMS-set “maximum fair price” for its product, it has two choices: face an excise tax of up to 95% of the entire U.

S. sales revenue of that medicine, or withdraw the drug from the Medicare and Medicaid market entirely. Neither option is realistic; no company can afford to forfeit 95% of its sales revenue from a given drug and still continue to produce it, and the Medicare market alone serves 65 million Americans (nearly a third of the national prescription drug market), many of whom desperately need these life-saving medications.

It’s no wonder that the makers of every drug on the August list eventually agreed to participate in these sham proceedings. As of now, the United States leads the world in drug development. Private investors fund nearly all the research and development costs necessary to bring a new drug to market — on average, more than $2 billion per newly approved medicine.

Profits from successful new drugs have to pay for the 90% of drugs entering clinical trials that don’t win approval. Investors will continue to fund this research only if they believe they will have a chance to make a return. With the largest single payer in the prescription drug market able to set prices in a “negotiation” where the drugmaker has little to no bargaining power, investors will start looking for opportunities to put their money elsewhere.

Proponents of more government control over the health care system often support more federal funding for medical research as a supposed alternative to private-sector investment. But public funding contributes less than half of all total money currently spent on R&D in America. Federal funding also tends to be concentrated in the early stages of scientific research, whereas private sector investments take that knowledge across the finish line by turning it into approved medications.

Like it or not, we need both. A study by the University of Chicago found that over the next 16 years, the impact of the new law will cause R&D funding in the private sector to fall by 18. 5%, leading to the development of 135 fewer drugs and a staggering 331.

5 million life years lost in the United States. Such a dramatic decline in R&D investment wouldn’t just leave patients with fewer life-saving therapies. It would also threaten the countless jobs the biopharmaceutical sector supports.

In Puerto Rico, the bioscience industry indirectly or directly supports close to 80,000 jobs, many of which are in pharmaceutical manufacturing. Fewer new drugs being invented will necessarily lead to a reduction in manufacturing demand, which could force Puerto Rican production facilities to shutter. This would be devastating for the island, where life sciences accounts for nearly a third of gross domestic product.

Making medications more affordable for seniors is a worthy goal. But price controls will only stifle our ability to innovate in drug development while also damaging the economy. And that’s true even if they are falsely billed as “voluntary.

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